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NAI Rebuilds Itself

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Looking to recover from what was a less-than-stellar 2000, Network Associates Inc. is set to embark on an ambitious strategy that will eventually result in the companys delivering virtually all its enterprise software over the Internet.

For the time being, Network Associates will continue to sell both packaged software and Web-based services and will soon introduce a line of three virus-scanning appliances called WebShield ASaP. Due this month, the Linux-based boxes will sit at the edge of a customers network and scan incoming and outgoing packets for viruses.

Network Associates Network Operations Center will monitor the appliances around the clock and alert administrators at the first sign of a virus attack.

But the real pillars holding up the companys plans are its Web-based delivery system and managed services, most of which were offered by its former subsidiary myCIO.com. And that divisions Rumor peer-to-peer technology will play a key role in Network Associates new strategy.

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Devised as a way to propagate new virus definitions and policy changes more quickly to a large number of client machines, Rumor will expand in the near future to include new security functions. For example, changes to a customers firewall policies, intrusion-detection system or other security products will be able to be easily dropped into the Rumor system and pushed out to necessary machines.

"Rumor has shown itself to be a very efficient product line, and its incumbent upon us to figure out how to distribute software better," said Zach Nelson, chief strategy officer at Network Associates, of Santa Clara, Calif., and the former CEO of myCIO. "We firmly believe that Web-based delivery is where its all going."

myCIO was recently absorbed back into Network Associates, the first step in fleshing out the software-as-services plan, Nelson said. "In three to five years, products and services will be indistinguishable," he said. "Our idea is to deliver a stream of bits instead of a box, but it will take some time. The world hasnt changed to that model yet."

Some customers seem to have taken to the idea, while others remain unsure about its potential uses with other applications.

"Web-based delivery has been really good for us. As far as using it for other software, well have to wait and see," said Lee Rockladge, network manager at DPR Construction Inc., in Redwood City, Calif., which uses the Rumor system. "It all depends on what the software is and whether it makes sense to do that."

The last year has been anything but enjoyable for officials at Network Associates. The company has endured a period of tremendous upheaval and uncertainty, including several shareholder lawsuits, a raft of resignations at the top of its corporate power structure and questions about its product strategy. But company executives believe the worst is now over and that the company is poised for a comeback.

But not everyone is convinced this is the right move for a company traditionally known as a maker of shrink-wrapped desktop software. Critics say the plan will take Network Associates too far afield from what made it successful in the first place.

"Theyre still selling a lot of product; its not like theyre doing that badly," said David Thompson, senior manager of the security practice at PricewaterhouseCoopers, in Boston. "Instead of getting their base market confused, they should saddle up that anti-virus horse and ride it."

Nevertheless, Network Associates plans to move quickly on the new strategy, a reflection perhaps of new CEO George Samenuks style. Samenuk, who took over the company in January after the resignation of former CEO William Larson, has set a frenetic pace during his first few weeks on the job. He has been traveling around the world to meet with customers and employees, absorbing criticism of the company and asking for suggestions on ways to improve operations.

He guaranteed that Network Associates will return to profitability by the next half of the year. That will likely provide a badly needed kick start to the companys stock, which has fallen more than 50 percent since December—and more than 80 percent in the last year—and now trades below that of its McAfee.com Corp. subsidiary.

Company officials readily acknowledged that customer support and responsiveness have suffered of late but say thats going to change. "This isnt easy. We wont see results tomorrow," Samenuk said at the time of his hiring. "This company has hit some bumps in the road. You dont have to be a rocket scientist to know that our No. 1 priority is rebuilding credibility."

That rebuilding process is likely to be long and arduous and wont be made easier by the fact that the company is also facing increased competition from established players such as Symantec Corp. as well as a host of well-funded startups that are targeting pieces of Network Associates portfolio.

Companies such as Sophos Inc. in the anti-virus market and F-Secure Corp. in the anti-virus and virtual private network markets have set their sights on Network Associates, and analysts say the company needs to rebound from its doldrums quickly to hold its ground.

"They still have plenty of room to grow in their core markets, but they need to get started," said Thompson of PricewaterhouseCoopers.

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